We know the thoughts are swirling around in your head...3 bed, 2 bath, picket fence, garage...oh and very cheap. Well it's official, you've been bitten by the homeownership bug and believe it's a perfect time to jump into the market. Your friends are bragging about the incredible deal they received, but where do you find the perfect, (affordable) home?

What is Foreclosure?
Foreclosure is a legal process whereby a lender terminates a borrower's right to redeem a property, generally because the borrower is unable to continue paying on the mortgage. Once the foreclosure process is complete, the lender can sell the property to repay the mortgage.

If you're considering buying a foreclosed property, keep in mind that there are many pitfalls to watch out for, and laws vary from state to state. You'll absolutely want to work with an experienced mentor, real estate attorney, or other trustworthy professional.

The Three Stages of Foreclosure
Depending on state law, foreclosure can be a relatively short or lengthy process. You might be able to buy a property in pre-foreclosure, at a foreclosure auction, or (if it didn't sell at auction) in the real estate owned (REO) phase.

1. Pre-Foreclosures
In order to identify properties that are in a pre-foreclosure status, you'll need to locate loans that are in default. To do this, you may need to spend time in the courthouse researching foreclosure filings or subscribe to an online foreclosure reporting service that will do this for you. Once you find a property you're interested in, you'll need a title search performed to determine what liens are against the property, and you'll need to contact the owner to negotiate a purchase. You'll also need to have the property inspected (it may need some repair work) and then determine its market value. In making an offer on the property, consider the cost of paying off liens, repairing the property, and any other fees you'll need to pay (such as those associated with securing financing to make the purchase).

This option requires a lot of legwork on your part and (preferably) the services of others experienced in the process. Contacting an owner (especially one who hasn't listed the property for sale) can be difficult and stressful. However, pre-foreclosure sales may require minimum down payments, and you may be able to acquire a property at a good discount off its market value.

2. Auction Sales
Once the foreclosure process is complete, the foreclosing lender (usually the holder of the first mortgage) may attempt to sell the property at auction--a fast-moving, public proceeding. Before you buy, you should have the title researched just as you would when making a pre-foreclosure offer. On the downside, you may not be allowed to have the property inspected beforehand (which precludes the possibility of obtaining a mortgage to purchase it), so you'll be buying it "as is" and may not know all of what that entails. If you're the successful bidder, you'll need to make at least the required minimum down payment in cash (or with a certified check) on the spot and pay or finance the balance within 30 days, sometimes sooner.

Because you can't always inspect the property beforehand and arrange financing, and because you must buy it "as is," buying a property at auction can be very risky. However, you can receive a substantial discount off the market value of a property.

3. Real Estate Owned (REO) Properties
If a foreclosed property doesn't sell at auction, the foreclosing lender takes possession of it. As a result, junior liens (such as second mortgages or home equity lines of credit) that may have encumbered the property's title are discharged, and any taxes owed are paid. Any occupants remaining in the property are evicted, and the property is usually listed with a real estate agent.

At that point, the property becomes available for inspection. You may be buying an REO "as is," but you'll be able to find out what that means, and can adjust your purchase offer accordingly. While the lender holding the REO will try to get as much as possible for the property, it may consider discounts off market value in order to get the property off its books.

Purchasing an REO is probably the least risky way to buy a foreclosed property. You have time to arrange financing, and you may be able to obtain some discount off the property's market value. However, the discount off market value will generally not be as substantial as with the other options for buying foreclosed property, and working with the bank can be a lengthy process.

Over the past few days, we've been inundated by clients and website visitors with the same question:

"If my financial institution goes bankrupt, will I lose the assets in my checking, savings, certificate of deposit (CD), brokerage, 401k, or Individual Retirement Account (IRA)?"

In a single word: No.

National news outlets have done a superb job scaring the pants off of main street by reporting on the financial woes of Wall Street. Here's a recap of the players if you're scoring at home:

• Washington Mutual
• Merrill Lynch
• Bear Stearns
• Morgan Stanley
• Freddie Mac
• Fannie Mae
• American International Group
• IndyMac
• Lehman Brothers
• ...and more to come

But we sure wish these same news organizations would do the general public a great service by educating you on the federal consumer protections which exist to protect against your loss of bank deposits and investment assets.

Understand Your Federal Protections
As for bank deposits such as checking accounts, savings accounts, and CDs, your assets are protected (up to $100,000 per bank) by the Federal Deposit Insurance Corporation, often referred to as the FDIC. This means, if your bank goes under, the FDIC will step in and replace every dime you held in deposits at that bank within a matter of days, up to the $100k limit.

Rest assured in knowing that no consumer in U.S. history has ever lost money that was on deposit in an FDIC insured institution. But how do you know if your bank has FDIC insurance coverage? Surf over to the FDIC's nifty online tool and find out asap. If your bank is not listed, then move your cash into an institution that is!

Will a Market Meltdown Liquify My Portfolio?
When discussing the stock market, there are two distinct concerns here:

1. The market value of the stocks, bonds, and mutual funds in your portfolio
2. The solvency of the custodial institution at which your portfolio is held

As for the first point, no government-based consumer protections exist to guard against the decline in the value of the securities you hold inside of a 401k, brokerage, or Individual Retirement Account. Similarly, no federal laws protect consumers against investment fraud; however, investment brokers such as Charles Schwab and E*Trade have rightly enacted these anti-fraud security measures themselves.

On the other hand, if your accounts are all held at MEGA Brokerage (fictional) and MEGA Brokerage itself declares bankruptcy, then yes your assets are protected against total loss by the federal government and its Securities Investment Protection Corporation, or SIPC. Note that the SIPC also has limits: $500,000 in stocks, bonds, and mutual funds, and $100,000 for brokerage cash.

No Time to Relax
Please read the above four words carefully. They do not say "panic"...far from it in fact, these are the times for a heightened sense of awareness, to pay closer attention to bank account statements, and stay tuned in to your favorite news outlets. We're embarking on a prolonged period of national economic turmoil, and as a financial professional, I advise everyone to remain prudent and patient.

Ask your five-year old where money comes from, and the answer you'll probably get is "From a machine!" Even though children don't always understand where money really comes from, they realize at a young age that they can use it to buy the things they want. So as soon as your child becomes interested in money, start teaching him or her how to handle it wisely. As we stress with our five Keys to SHINE™, it is critical to give your child a solid foundation for a lifetime of informed financial decisions.

Lesson 1: Learn to Handle an Allowance
An allowance is often a child's first brush with financial independence. With allowance money in hand, your child can begin saving and budgeting for the things he or she wants.

It's up to you to decide how much to give your child based on your values and family budget, but a rule of thumb used by many parents is to give a child 50 cents or 1 dollar for every year of age. To come up with the right amount, you might also want to consider what your child will need to pay for out of his or her allowance, and how much of it will go into savings.

Some parents ask their child to earn an allowance by doing chores around the house, while others give their child an allowance with no strings attached. If you're not sure which approach is better, you might want to compromise. Pay your child a small allowance, and then give him or her the chance to earn extra money by doing chores that fall outside of his or her normal household responsibilities.

If you decide to give your child an allowance, here are some things to keep in mind:

• Set some parameters. Sit down and talk to your child about the types of purchases you expect him or her to make, and how much of the allowance should go towards savings.
• tick to a regular schedule. Give your child the same amount of money on the same day each week.
• Consider giving an allowance "raise" to reward your child for handling his or her allowance well.
  

Lesson 2: Open a Bank Account
Taking your child to the bank to open an account is a simple way to introduce the concept of saving money. Your child will learn how savings accounts work, and will enjoy trips to the bank to make deposits.

Many banks have programs that provide activities and incentives designed to help children learn financial basics. Here are some other ways you can help your child develop good savings habits:

• Help your child understand how interest compounds by showing him or her how much "free money" has been earned on deposits.
• Offer to match whatever your child saves towards a long-term goal.
• Let your child take a few dollars out of the account occasionally. Young children who see money going into the account but never coming out may quickly lose interest in saving.
  

Lesson 3: Set and Save for Financial Goals
When your children get money from relatives, you want them to save it for college, but they'd rather spend it now. Let's face it: children don't always see the value of putting money away for the future. So how can you get your child excited about setting and saving for financial goals? Here are a few ideas:

• Let your child set his or her own goals (within reason). This will give your child some incentive to save.
• Encourage your child to divide his or her money up. For instance, your child might want to save some of it towards a long-term goal, share some of it with a charity, and spend some of it right away.
• Write down each goal, and the amount that must be saved each day, week, or month to reach it. This will help your child learn the difference between short-term and long-term goals.
• Tape a picture of an item your child wants to a goal chart, bank, or jar. This helps a young child make the connection between setting a goal and saving for it.

Finally, don't expect a young child to set long-term goals. Young children may lose interest in goals that take longer than a week or two to reach. And if your child fails to reach a goal, chalk it up to experience. Over time, your child will learn to become a more disciplined saver.

Lesson 4: Become a Smart Consumer
Commercials. Peer pressure. The mall. Children are constantly tempted to spend money but aren't born with the ability to spend it wisely. Your child needs guidance from you to make good buying decisions. Here are a few things you can do to help your child become a smart consumer:

• Set aside one day a month to take your child shopping. This will encourage your child to save up for something he or she really wants rather than buying something on impulse.
• Just say no. You can teach your child to think carefully about purchases by explaining that you will not buy him or her something every time you go shopping. Instead, suggest that your child try items out in the store, then put them on a birthday or holiday wish list.
• Show your child how to compare items based on price and quality. For instance, when you go grocery shopping, teach him or her to find the prices on the items or on the shelves, and explain why you're choosing to buy one brand rather than another.
• Let your child make mistakes. If the toy your child insists on buying breaks, or turns out to be less fun than it looked on the commercials, eventually your child will learn to make good choices even when you're not there to give advice.

As you probably know, actor Heath Ledger died tragically in January at the age of 28. And, you may have seen recent reports that Heath Ledger's will leaves nothing to his former girlfriend and their young daughter because it was drafted in 2003 (3 years before his daughter was born), and was never updated to include them after they became a part of his life. Instead, it appears that the will leaves everything to his parents and siblings. And though the Ledger family has stated that Heath's daughter will be taken care of, they may have no legal obligation to do so. In the end, Heath's former girlfriend may have to fight for their daughter's inheritance.

This story underscores the need to both make a will and keep it updated. If you care about what happens to your loved ones after you die, you owe it to them to do some estate planning. There are many tools you can use to achieve your estate planning goals, but a will is probably the most vital. Even if you're young or your estate is modest, you should always have a legally valid and up-to-date will. This is especially important if you have minor children because, in many states, your will is the only legal way you can name a guardian for them. A will can also allow you to:

• Name an executor to administer your estate according to your wishes
• Help minimize estate taxes and other costs
• Specify how estate taxes and.or other expenses should be paid
• Create a testamentary trust
• Fund a living trust

If you don't have a will, or haven't reviewed your will lately, don't put it off--it's just too important. If you have questions, or need help getting started, talk to a qualified financial professional.

If you qualify for an Economic Stimulus payment, and filed a timely 2007 federal income tax return, you've either received your IRS stimulus check already or you soon will (they're being issued through then end of July).

But what should you do with it?

Of course, the retailers want you to spend it, and many of them are coming up with enticing offers to get you to do just that. "Use your stimulus check to buy a gift card with us and we'll add an extra 10% to the balance." "Load your stimulus check onto our bank card and we'll waive the issuance fee."

Well, you could do that, but be aware that in doing so you're tying up all your money with one gift or bank card, and not all fees associated with them may be waived. So, before you leap into one of these offers, consider these other ideas for how to use your stimulus check:

• Cash the check and use the money where you want. By doing so, you aren't bound into spending all the money with one retailer, like you are with gift cards, or forced to leave a small balance remaining on the card because it's not enough to cover the cost of any merchandise the issuer sells. What's more, with cash you won't be subject to any maintenance fees or expiration dates, like you may be with bank cards.
  
  
• Pay (or prepay) a bill. The lump sum provided by your stimulus check may be just what you need to pay your real estate tax, car insurance, or dentist for that root canal. Or, you might start a prepayment plan with your home heating contractor to lock into a fixed fuel price for the coming winter.

• Start or add to your emergency fund. We all know we should have at least 3 to 6 months worth of living expenses in a cash reserve account. If you don't have a sufficient cash reserve, you might deposit your stimulus check in a savings account (or money market account or short-term CD) to create (or augment) that fund. You'll earn some interest on your deposit, and most such bank accounts are FDIC-insured.
  
  
• Pay off some or all of a high-interest debt. If you have outstanding credit card balances, give some thought to paying off some or all of those balances, starting with the balance that carries the highest interest rate. For example, if you apply $600 toward a credit card balance with an annual percentage rate (APR) of 14.9%, you could save almost $90 in interest charges over the course of a year.
  
  
• Invest in the future. You could start (or add to) a tax-advantaged vehicle such as a 529 plan, a Coverdell education savings account, or (if you're eligible) a Roth or traditional IRA.

In the end, the stimulus check is yours to do with as you wish. So, if you want to shop until you drop, you can. But consider this: We strongly recommend paying yourself first.

You work hard for your money. So why shouldn't you try to keep as much of it for yourself as you can? Here are some ways to pay less tax and keep more of your hard-earned dollars every month.

Tax Deferrals Rule
Take advantage of tax-deferred retirement account such as a 401(k) plan offered by your employer. They all allow you to make pretax contributions of up to $15,500 in 2008 ($20,500 if you're age 50 or older). The tax savings can be significant. For example, if your marginal tax rate is 28% and you defer $15,500, you'll save $4,340 in current taxes. Your $15,500 contribution will generate tax-deferred earnings for you until you withdraw the funds from the plan, when you may be in a lower tax bracket. And, if your employer matches your contributions, the deal is even sweeter.

Another common way to use tax deferrals to save more of what you earn is by setting up a health-care flexible spending account (FSA) at work. Your contributions reduce your taxable income (and current taxes), and the funds you set aside can be withdrawn tax free to pay a wide variety of health-related expenses that aren't covered by your health plan.

And don't forget the Traditional IRA. If neither you nor your spouse is covered by a retirement plan at work, and you're not yet 70½, you can make a deductible contribution of up to $5,000 to an IRA in 2008 ($6,000 if you're age 50 or older). Even if you or your spouse is covered by a plan, all or part of your contribution may be deductible, depending on your income.

Tax Free is Even Better
Another way you can generate tax-free income is by contributing to a Roth IRA or Roth 401(k) plan. Unlike pretax deferrals, Roth contributions don't reduce your income, so there's no current tax savings. Because you've already paid tax on your contributions, they won't be taxed again when you withdraw them from the plan. But what really sets Roth contributions apart, and makes them so appealing, is that all earnings are also tax free if you satisfy a five-year holding period and certain other requirements are met.

If you have children, don't pass up the tax incentives offered by Section 529 plans and Coverdell education savings accounts (ESAs). Again, your contributions to these plans aren't tax deductible, but your savings grow tax deferred and withdrawals are tax free at the federal level (and typically at the state level too) when used to pay qualifying educational expenses. You can contribute up to $2,000 to a child's Coverdell ESA in 2008, and most 529 plans let you contribute more than $300,000 over the life of the plan.

Think Long-Term--for Capital Gains
Long-term capital gains tax rates are currently very attractive--a maximum of 15% through 2010. Short-term capital gains, on the other hand, are generally taxed at ordinary income tax rates--currently as high as 35%. To qualify for long-term capital gains treatment, make sure you hold your securities and other capital assets for more than one year before selling them.

At some point in your life, you'll probably be faced with the question of whether you need life insurance. Life insurance is a way to protect your loved ones financially after you die (and your income stops). The answer to whether you need life insurance depends on your personal and financial circumstances.

Do You Need Life Insurance?
You should probably consider buying life insurance if any one of the following is true:

• You are married and your spouse depends on your income
• You have children
• You have an aging parent or disabled relative who depends on you for support
• Your retirement savings and pension won't be enough for your spouse to live on
• You have a large estate and expect to owe estate taxes
• You own a business, especially if you have a partner
• You have a substantial joint financial obligation such as a personal loan for which another person would be legally responsible after your death

In all of these cases, the proceeds from an insurance policy can help your loved ones continue to manage financially during the difficult weeks, months, and years after your death. The proceeds can also be used to meet funeral and other final expenses, which can run into thousands of dollars.

If you're still unsure about whether you should buy life insurance, a good question to ask yourself is: If I died today with no life insurance, would my family need to make substantial financial sacrifices and give up the lifestyle to which they've become accustomed in order to meet their financial obligations (e.g., car payments, mortgage, college tuition)?

If You Do Need Life Insurance, Don't Delay
Once you decide you need life insurance, don't put off buying it. Although no one wants to think about and plan for his or her own death, you don't want to make the mistake of waiting until it's too late.

Review Your Coverage Periodically
Once you purchase a life insurance policy, make sure to periodically review your coverage--especially when you have a significant life event (e.g., birth of a child, death of a family member)--and make sure that it adequately meets your insurance needs. The most common mistake that people make is to be under-insured. For example, if a portion of your life insurance proceeds are to be earmarked for your child's college education, the more children you have, the more life insurance you'll need. But it's also possible to be over-insured, and that's a mistake, too--the extra money you spend on premiums could be used for other things. If you need help reviewing your coverage, contact your insurance agent or broker.

Should You Buy Life Insurance for Your Children?
As described above, life insurance is intended to provide a safety net for the policyholder's dependents. In other words, you must ask yourself, "Is anyone dependent upon my child for their financial well being?" Probably not. And although some companies (insurance agencies, no doubt) will tell you differently, there is no financial basis for purchasing a life insurance policy for a healthy child. The money you would otherwise spend on premiums are better served in a college savings account such as a 529 Plan or Coverdell account.

Similarly, don't let the insurance agent convince you that your newborn baby needs a life insurance policy either...the same principle applies. In the unfortunate event that something does happen to your infant, it will not materially affect any dependents of the child (because there are none). So once again, baby life insurance is not a prudent financial move.

Economics is known as "the dismal science", so you might not expect economists to have much of a sense of humor. But there is at least one joke economists tell that is actually very funny — and very educational.

A husband and wife spend a night in Las Vegas, and the man decides to try his luck at the casino. He loves roulette, but vows not to wager more than $5. So he puts his $5 down — on his lucky number, 17 — and wins. He keeps betting on number 17 and he keeps winning, so much so that towards the end of the night he is up more than $10 million. He decides to wager it all one last time on number 17. But this time he loses, and his $10 million gain is gone in an instant. When he returns to his hotel room, his wife asks him, “How did you do?” “Not bad,” he replies. “I only lost $5.”

The man could afford to be so relaxed about his multi-million dollar loss because of a phenomenon known as mental accounting, the tendency to value money differently based on where it comes from, where you keep it, how you spend it, and whether you expected more or less of it. As far as the gambler was concerned, the only money that was really ‘his’ was the initial $5. He didn’t have the $10 million before he started gambling and he didn’t have it when he finished, so for him the only real loss he suffered was the $5.

That is a common, if completely illogical, reaction to unexpected money. The truth is, the $10 million was just as much ‘his’ money as the initial $5. The only difference was that he never expected to have the $10 million, so he was more easily able to rationalize its unexpected loss.

If It's on Plastic, It Still Counts
The same kind of thing happens all the time in our day-to-day financial lives. Say you’re out shopping for essentials — groceries, for example — and you see some luxury item you would really love to have. You wouldn’t dream of paying for it in cash; that would blow an enormous hole in your budget. So you pay for it with a credit card. That feels better since the mental account in your head called ‘grocery budget’ remains intact, and the bill for the mental account in your head called ‘credit card’ won’t be due for at least another month.

But, of course, whether you pay in cash or you pay with credit, all of the money ultimately comes from the same account: yours! Purchases made on credit can feel less immediate because no cash actually leaves your wallet. But the reality is, credit card purchases will end up costing you more money — unless you pay off the amount in full every month, thereby avoiding interest charges.

Researchers conducted an experiment in which two groups of people were asked to bid on tickets to a basketball game. One group had to pay cash, while the other could pay by credit card. The average credit card bid was twice as high as the average cash bid. Why? Credit card bidders felt richer because they didn’t have to fork over any actual cash from their mental accounts.

Mental Accounting Every Day
Take a moment to think about some of your daily financial transactions, and you’re sure to spot examples of mental accounting at work. Say you have $1,000 stashed away for a rainy day under your mattress. You also have $1,000 in credit card debt, at 18% interest. You won’t touch the $1,000 in savings because it’s in a mental account called ‘emergency fund.’ But if you used it to pay off your credit card debt, you would save your self the 18% in interest charges, which amounts to $180. You could then use that $180 to start rebuilding your emergency fund, and you will have cleared some of your most expensive debt in the process.

Of course, mental accounting has its upsides, too. Keeping untouchable money in mental accounts like ‘home down payment’ or ‘college savings’ or ‘travel fund’ can be good for achieving your savings goals. Nonetheless, it is worth examining your mental accounts from time to time to make sure they all add up.

A Tax Refund Does Not Equal a Shopping Spree
The perfect opportunity to balance your mental accounts is tax time, especially if you are due a refund. As part of the government’s economic stimulus package, many households will receive tax rebates — of between $300 and $1,200 — in May. It’s tempting to put that money in a mental account called ‘Splurge!’ After all, like the Las Vegas gambler, you didn’t have that money before you filed your taxes, so you won’t miss it if you don’t have it after you filed your taxes, right?

Wrong.

That money is just as much ‘yours’ as the money in your paycheck. In fact, a tax rebate is nothing more than money taken from your paycheck that the government has decided to give back to you. So consider depositing any refund into mental accounts called ‘401(k)’ or ‘health care insurance’ or even ‘emergency fund.’ Tax rebates don’t have to be treated as ‘funny money.’ And maybe that’s why economics is called “the dismal science” because managing your finances is a serious business.

Note: Certain aspects of this article were produced by the Certified Financial Planner Board of Standards, the regulatory body for the CFP® and CERTIFIED FINANCIAL PLANNER™ marks.

As money experts, we are constantly asked the question, "How do I become a millionaire?" In the past, our responses involved stock market returns, saving wisely, and spending less...all quantitative measures. And honestly, these elements have been important in unlocking the doors of financial freedom for millions. But after speaking with audiences around the country--and learning from our own clients--we now understand that the answer isn't necessarily found on a bank statement or in an investment account. The answer is actually revealed with a simple word: Passion.

Now let's be real. Passion alone won't necessarily make your dreams of financial independence come true. Many people are passionate about many things (i.e. designer shoes, Paris Hilton's love life, and the 1972 Miami Dolphins) but this doesn't necessarily spell success.

Opportunities for personal growth exist for an increasing number of Americans, but they may not all succeed. Key traits that we constantly observe in our "well off" clients include determination, insight, and a strong belief in oneself. SmartMoney.com wrote about an interesting group of people it calls The $5 Million Club, and the characteristics listed above are found in every profile.

So, try this. For a moment, forget about money. Just think about what excites you. If the paycheck wasn't a concern, then what would you love to spend the rest of your days doing?

Would you want to:

• Play the concert piano?
• Sail the open seas?
• Volunteer at the local community center?
• Teach our nation's youth?
• Photograph the world?
  

In our observations, problems arise when individuals reverse this cycle and focus on the amount of money they want to earn...and then select a (often undesirable) job that will allow them to make the desired salary. However, this order is unnatural and often leads to burnout and early-career frustration, particularly since money can create an insatiable appetite for more.

Instead of focusing solely on salary, what if you decided to pursue your dreams? Imagine the personal happiness and success you would enjoy if you actually loved what you did. As the saying goes, "Do something you love for a living, and you'll never work another day in your life."

So now, when people ask us, "How do I become a millionaire?", we respond with another question: "What do you love to do?". To be clear, passion is how you let go of the fear and greed, and ultimately, how you become wealthy.

Even though we are money experts, we understand that wealth is about much more than the dollars and cents in your bank account. Wealth is the spiritual, emotional, and physical fulfillment that comes when you truly find yourself, achieve peace, and fulfill your dreams. Cash does indeed influence these factors, but the dollars in your pocket are only the means to a greater end.

Money is a poor master, but a great servant.

Today, women have more financial responsibilities than ever before. But, according to a recent industry report, many U.S. women remain without (or with inadequate) life insurance coverage. To be clear, life insurance planning is just as important for women as it is for men.

Income Replacement
Life insurance can be a useful tool for replacing income lost due to the death of a family's wage earner. If you're a working mother, your income can have a significant impact on the quality of your family's lifestyle, children's college education, and your own retirement. Life insurance protects your family by providing proceeds that can be used to replace your lost income if you die prematurely.

Single Parent Considerations
It's necessary for everyone, but for single parents especially, the creation of a emergency "rainy day" fund with enough cash to cover 6 months of living expenses is paramount. In today’s economic picture, job loss is a realistic possibility, and single parents have to build a safely net into their financial lives.

Secondly, as the sole provider, the child's financial welfare essentially depends upon one person. Therefore, single parents must ask themselves tough questions, such as "What would happen to my child if I were no longer in the financial picture?" As a result, we usually recommend a term life insurance policy which spans the child’s college years and includes a death benefit high enough to cover the total future (inflated) cost of the child’s college education.

Stay-at-Home Mom
Maintaining a household is a full-time job, and you have many important roles and duties. If you die, your surviving spouse may have to pay for services such as child care, transportation for your children, and housekeeping. Assuming any added responsibilities could cause your spouse to shorten work hours, resulting in a reduction in income. Proceeds from your life insurance can help your surviving spouse pay for necessary services and replace lost income.

Caregiver Replacement Costs
Many women find themselves providing care for both children and elderly family members. It's hard enough to find sufficient income to pay for household expenses, child care, and college tuition. Throw in the additional costs of caring for an elderly parent or other family member-- such as adult day care, uninsured medical expenses, and extra travel and transportation costs-- and the financial burden can be overwhelming.

Business Succession
The Center for Women's Business Research reports that over 10 million businesses are owned by women. If you die while owning your business, life insurance can be used to provide cash for company expenses such as payroll or operating costs while your estate is being settled. Life insurance can also be a useful tool for women business owners who are structuring buy-sell arrangements or providing benefits to key employees.

Final Expenses
The costs of funeral and burial expenses, estate administration expenses, outstanding debts, estate taxes, and the uninsured expenses of a final illness can place a financial burden on your survivors. Life insurance can ease this strain by providing a benefit that can be used to help pay for these costs.

Ensure You Have Enough Coverage
Women often carry inadequate life insurance coverage. If you have children, a spouse, or a business, then it may be time for you to consult with an qualified financial professional who can help you assess your life insurance needs and offer information about the different types of policies available.

According to media reports, our nation's Presidential candidates had a very good fund raising month of February.

Barack Obama received a record $55 million, the most ever raised by a presidential primary candidate in a single month. This puts him on pace (if he could campaign for 12 more months) to rack up more than $650 million dollars per year. Close on Obama's heels, Hillary Clinton raised an estimated $35 million, and John McCain came in third by netting about $12 million. If we project each candidate's February numbers over a full year--and add them all together--the three presidential candidates are on pace to raise over $1.2 billion per year.

So an interesting thought experiment arises. With our nation's ongoing economic woes, perhaps we should have an endless, year-after-year presidential campaign...with one important caveat: The candidates must funnel every penny of contributions into our nation's schools, roads, bridges, and hospitals. After all, who's currently getting these millions of dollars? Political consultants? PR reps? TV stations?

Let's eliminate the middlemen and put this immense cash to work for the American people.

Many economists believe the struggling U.S. homeowner needs greater assistance from the federal government in order to avoid foreclosure. Federal Reserve Chairman Bernanke agrees. Last Tuesday, Mr. Bernanke called for additional action to prevent our nation's distressed homeowners from ultimately losing their homes to foreclosure.

"Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole...more can, and should be, done," the Fed chief said.

Among his suggestions, Bernanke wants mortgage and other financial companies to reduce the amount of the loan principal in order to provide financial relief to the borrower. Of course Bernanke himself acknowledged this idea won't be easy to sell to the lenders.

A Predictable Predicament
In a blog post ten months ago (and again four months ago) we examined several factors that were most likely going to impact our economy in a negative way. Here's a quick refresher...

Even though the U.S. stock market rose to record levels not long ago, these metrics are not the end-all-be-all measures of our nation's financial status. Let's not forget the other (currently less favorable) economic indicators and their effects on our economy:

• Consumers are saddled with enormous levels of revolving debt
  
• Real wage growth is stagnant
• Personal savings rates are at 70-year lows
• Home-foreclosure rates are accelerating
  
• Oil prices are at record highs
• Our nation is bogged down in a costly, unpopular war
• Health care and college tuition costs are easily out pacing inflation

Your Action Items
The whole point of the article you are currently reading is to demonstrate that our nation's current economic situation was very clearly written on the wall for months (if not years). Our leading economic indicators were clearly trending into the direction of a severe slowdown. In times such as these, prudent savers and investors alike must remain so. Do not panic. Continue to think clearly and rationally about your financial situations. Now, more than ever, you should consider seeking the counsel and advice of a qualified financial professional.

If you plan to make significant charitable gifts over a long period of time, a donor-advised fund (DAF) can be an attractive alternative to a private foundation.

What is a Donor-Advised Fund?
While private foundations are separate charitable entities operated by their donors, a DAF is merely an account set up with a host organization, such as a community foundation or educational institution. You make contributions to the account, and the organization makes grants to qualifying charities in your name. Although the organization legally owns your contributions and has ultimate control over grants, you can advise the organization on how to invest your contributions and how grants should be made.

Donor-advised funds have become popular recently because they require less money, time, legal assistance, and administration than private foundations. DAFs also enjoy greater tax advantages.

What are the Advantages?
Generally, you can open a DAF with a smaller initial contribution than would be required with a private foundation (as little as $10,000). And because DAFs are qualified public charities, you generally get an immediate income tax deduction for your contributions (subject to the usual limitations).

Additionally, while private foundations are required to distribute a minimum of 5% of their assets each year, DAFs currently have no such minimum distribution requirement. You can let your account build up tax free for many years, deferring distributions until a later date. Further, DAFs are not subject to excise tax as private foundations are.

Finally, DAFs don't need to fulfill many of the reporting and filing requirements that are imposed on private foundations. And because the host organization handles any legal, administrative, and filing requirements (including tax returns), you're completely freed from these responsibilities.

As Washington tries to move quickly to finalize an economic stimulus package that will give individual Americans rebates of several hundred dollars, Mark Johannessen, President the Financial Planning Association (FPA), issued a warning in late January advising consumer caution when considering uses for the money.

"It’s strangely ironic that Washington is telling Americans to go out and spend to help save our troubled economy," said Johannessen. "American consumers are nearing the $1 trillion mark in debt, for credit cards, mortgages and other types of loans."

Rebate Options
Once Congress reaches an agreement and you actually receive a rebate check--which will likely occur no sooner than May 2008--Johannessen is urging people to carefully consider using the money to pay down their credit card debt or add it to their savings for an emergency fund or retirement.

We strongly agree. Although the politicians want you to spend, spend, spend, the most prudent financial move for most is to establish and begin funding an emergency "rainy" day fund. In the grips of a recession, jobs are lost, incomes decrease, and household financial security often comes into question.

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Lightship Mutual is a proud member of the Financial Planning Association, a national organization dedicated to providing everyone with competent, objective financial advice delivered by competent, objective financial professionals. FPA members demonstrate and support an ongoing commitment to education as well as a client-centered financial planning process.

If you rent a house or an apartment, you probably think renter's insurance is unnecessary. Besides, you don't even own the building, and your landlord has coverage. However, you must realize the landlord's insurance policy only covers the building, not your personal belongings contained inside.

Without renter's insurance of your own, all of your electronics, furniture, books, clothes, etc. could be destroyed in a fire or lost during a burglary, and you would have no legal avenue to reclaim the cash value of your personal property.

What is Renter's Insurance?
Renter's insurance is a special kind of homeowners insurance. It provides no coverage for the building itself. Instead, it covers your personal possessions and protects you against liability claims if you rent a house or apartment.

Property Damage Coverage
Renter's insurance policies cover only losses that result from any of 17 named perils. If your property is lost or damaged as a result of one of these perils, your insurance company will compensate you for your loss. The covered perils are:

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil disturbance
5. Aircraft
6. Vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
10. Broken glass
11. Volcanic eruption
12. Falling objects
13. Weight of ice, snow, or sleet
14. Accidental discharge or overflow of water
15. Sudden and accidental tearing apart
16. Freezing
17. Artificially generated electrical charge

Keep in mind that most renter's insurance policies specifically exclude certain perils (e.g., earthquakes, flooding). As a result, you may need to purchase a separate policy to insure your possessions against damage caused by these hazards.

Property coverage levels typically start somewhere around $15,000 and go up from there. As you increase your coverage level, your premiums increase as well. An financial professional can help you determine the amount of coverage that you need. Or, you can visit one of our favorite insurance websites for more information.

Replacement Cost vs. Actual Cash Value
These may sound like highly technical terms, but they are actually very important when determining how much money you will get if you ever have to file a claim. When you get a quote from your insurance agent, make sure you know which type of coverage is being described.

• Actual Cash Value Coverage - reimburses you for only the amount that your property was worth at the time it was stolen, damaged, or destroyed. This means that if all of your clothes suffer smoke damage in a fire, your insurance company probably will pay as much as you could've made at a yard sale--not the $4,000 you spent over the last couple of years to create the perfect wardrobe.

• Replacement Cost Coverage - reimburses you for the amount that it will cost to replace your property. If you bought a $400 television two years ago, you'll receive enough money to go out and buy another television just like the old one. You will probably have to replace the lost property with your own money and submit the receipt before you receive compensation. Nevertheless, replacement cost coverage typically pays significantly more than actual cash value coverage.

Liability Coverage
Renter's insurance also provides liability coverage. A typical renter's insurance policy covers you for accidents and injuries that occur in your dwelling, as well as accidents outside of your home that are caused by you or your property. (This does not include automobile accidents.) This liability coverage includes legal defense costs, if you are taken to court over such an accident. Standard levels of liability coverage are $100,000, $300,000, and $500,000. The amount of liability coverage that you need depends on your individual circumstances.

What Does it Cost?
The cost of renter's insurance varies greatly depending on where you live, the construction of the building, your deductible, and how much insurance coverage you need. But renter's insurance is much less expensive than traditional homeowners insurance. On average, you will pay somewhere between $100 and $300 annually for a basic policy providing about $30,000 worth of coverage for your property. Replacement cost coverage is typically more expensive than actual cash value coverage and, in our opinion, is usually worth the extra money.

Did you know that insurance companies typically consider your credit history--whether positive or negative--when you apply for automobile or homeowners insurance? Insurers may use your credit information not only when deciding whether to approve your insurance application but also in determining the premium you'll pay.

Why Does Your Credit History Matter When You Apply for Insurance?
Studies by independent researchers and industry consultants have convinced insurance companies that a strong correlation exists between your credit history and the likelihood that you'll file an insurance claim. Using information contained in your credit record, an insurer calculates your "insurance score". If this score is low, the insurer may consider you to be less of a risk than if your insurance score is high.

How is Your Insurance Score Determined?
Although methods vary, an insurance company typically calculates your insurance score by applying a mathematical formula to statistically significant factors on your credit record. These factors may include the amount of debt you have outstanding, whether you have serious blemishes on your credit report (such as past-due amounts, collection accounts, and bankruptcies), and the number of times you've applied for credit within the past year.

Will a Low Insurance Score Prevent You From Buying Insurance?
Not necessarily. Because your insurance score is generally just one of the factors insurers use to decide whether or not to offer you coverage, an insurer may decide to approve your application even if you have poor credit. However, a low insurance score often places you in a higher risk category, and you may end up paying a higher premium for insurance.

Keep in mind, too, that every insurance company has its own underwriting standards. Even if one insurance company rejects your application due to poor credit, another insurance company may issue you a policy.

What if You Have Little or No Credit History?
For today's young professionals, having little or no credit history automatically places you into the "average" risk category. Other states prohibit insurers from even using credit as an underwriting factor if you have little or no credit history.

Can Your Insurer Cancel or Refuse to Renew You Based on Credit?
In many states, an insurer can cancel or refuse to renew your insurance policy if your credit has deteriorated. However, some states have passed legislation prohibiting insurers from using your credit report as the sole basis for making decisions about cancellations and renewals.

Is There Anything You Should Do?
Insurers must tell you if they look at your credit history when they consider your insurance application or when they determine the rate you'll pay for insurance. To find out if your credit history has affected your ability to get insurance or your insurance premium, contact an insurance company representative. Here are some other things you can do:

• Since laws vary from state to state, contact your state's insurance department if you have questions about the regulation of credit-based insurance scoring in your state.
  
  
• Know your rights. Under the Fair Credit Reporting Act, insurers must inform you that they've turned down your insurance application based on information in your credit report, and notify you that you have a right to request a free copy of that credit report.
  
  
• Shop around for insurance coverage. Different insurers have different policies regarding the use of insurance scores. The cost of insurance premiums may also vary, so comparison shop for the best deal.
  
  
• Check your credit report once a year. Order copies from the three major credit bureaus and make sure they contain correct information. Dispute any errors with your creditors and with the credit bureaus.
  
  
• Ask your insurance company to rerun your credit score if you feel that doing so would improve your insurance rating (many states allow consumers to request this once per year). But check insurance regulations in your state first--some states allow insurers to take adverse action against current customers based on downturns in their credit scores.

For years, Congress and the IRS perceived that taxpayers were overstating the value of donations for tax deduction purposes. As a result, the rules regarding valuations of charitable contributions have recently become more stringent, and they include harsher penalties for excessive valuations.

Although the new valuation rules are currently focused on charitable contributions (including conservation easements), it is widely believed that Congress and the IRS will expand the new rules to all tax valuations in general. Cautious taxpayers may want to apply the new rules to any tax-related transactions involving appraisals, such as valuations required for non-charitable gifts or a buy-sell agreement.

New Rules
The new rules generally require that you obtain a "qualified appraisal" from a "qualified appraiser" for donations of property worth over $5,000 (other than cash and publicly traded securities), and you must attach an appraisal summary (IRS Form 8283) to your tax return. These rules apply to valuations for income, gift, and estate tax purposes.

What is a Qualified Appraisal?

Generally, a qualified appraisal is:

• Made no earlier than 60 days before the donation is made, and no later than the due date of your tax return (including extensions), and
• Signed and dated by a "qualified appraiser"

Who is a Qualified Appraiser?

Generally, a qualified appraiser is an individual who:

• Has earned an appraisal designation from a recognized professional appraiser organization, or has otherwise met "minimum education and experience requirements" for valuing the type of property subject to the appraisal, and
• Regularly performs appraisals for pay

"Minimum education and experience requirements" include:

• Successfully completing college or professional level coursework that is relevant to the property being valued, and
• Obtaining at least two years of experience in the trade or business of buying, selling, or valuing the type of property being valued

The Plain English Explanation
More simply stated, to get a qualified appraisal, you must retain an appraiser who holds a professional designation, such as ISA (International Society of Appraisers), ASA (American Society of Appraisers), or AAA (Appraisers Association of America), or someone who has received the requisite schooling and experience.

While these stricter standards are meant to improve the appraisal industry, they have actually shrunk the world of qualified appraisers, for the time being at least. For example, a knowledgeable and skilled expert with years of experience at Sotheby's, but no professional designation or time in the classroom, may no longer be qualified to make appraisals under the new rules.

Further, because the meaning of the new rules needs some clarification, some appraisers may be unsure about whether they're qualified, and they may be unwilling to risk incurring potential penalties. Needless to say, finding a qualified appraiser has become a more daunting task.

Practical Guidance
Your best bet is to hire an appraiser who holds a professional designation related to the property being appraised. Contact the societies listed above for referrals. However, while it may be easy to find such an appraiser for certain types of property, like real estate, it may not be so easy for other types of property.

Here are some other tips:

• Talk to a financial or tax professional for more information
• Obtain documentation about the appraiser's education and experience, and how often he or she conducts appraisals for a fee
• Most importantly, make sure the appraiser is aware of the new appraisal rules, including what is required and the potential penalties

New Year's resolutions don't all have to be about going to the gym, eating five fruits & veggies a day, or spending less time with Dr. Phil. Here are ten financial resolutions to consider.

1. Get Organized
Set up a records center, perhaps a fireproof file cabinet sectioned into financial categories. Determine how long you need to keep each type of document (it depends on what it is) and make up a master list detailing what's where. Then, tell someone else you trust where to find the list in case of an emergency.

2. Learn More About Your Money
Visit the local library and find the personal finance shelf. While you're at it, pick up a 1-year subscription to a personal finance magazine and enjoy 12 months of education and enlightenment. Also, be sure to frequent the top personal finance websites such as Yahoo Personal Finance, USA Today Money, and Lightship Mutual (a cheap plug, we know.)

3. Analyze Your Cash Flow
Every financial plan begins with a thorough understanding of where money is coming from, and where it is going. In order to be successful--whether you are a struggling young professional or a multi-national corporation--cash flow monitoring is critical. Many banks now provide online spending/budgeting tools for you to use at no additional cost. Actually, it doesn't have to even be that complicated. Many people still use a computer spreadsheet or paper journal to keep track of the money trail.

4. Improve Your "Soft Skills"
This one doesn't seem to fit at first, but your ability to earn income is the lifeline of your financial being. Without income, how can you purchase investments, insurance, and other needs? As a result, you must find ways to increase your professional appeal by improving the skills most employers want. Speak, listen, lead, collaborate...master these traits, and find yourself indispensable to the team.

5. Create an Emergency "Rainy Day" Fund
Aim to establish an emergency fund equal to 3 to 6 months of your living expenses in case you experience a sudden loss of income. You might accomplish this by increasing income with a second job and/or decreasing discretionary expenses. Be sure to find the best savings account to stash this cash.

6. Increase Your Retirement Savings
If you participate in a retirement plan such as a 401(k) or a 403(b), contribute the most you possibly can--particularly if your employer matches some or all of your contribution. Salary deductions are made on a pretax basis, and any investment earnings grow tax deferred until they're withdrawn. And if your 401(k) or 403(b) plan allows after-tax Roth contributions, qualified distributions of your contributions and earnings will be completely tax free.

IRAs also feature tax-deferred growth of investment earnings. Traditional IRAs may help lower your present taxable income if you're eligible to make deductible contributions. Withdrawals (unless you're withdrawing nondeductible contributions) are taxed as ordinary income, however. Roth IRA contributions are not deductible but, like Roth 401(k)s, qualified distributions are entirely tax free.

7. Review Your Investment Portfolio
Is your asset allocation still in line with your investment goals, time horizon, and risk tolerance? Is it time to rebalance your allocation in light of changing market conditions and/or your changing needs? Are you taking appropriate advantage of new investment products? Reviewing your portfolio periodically can help you stay on track.

8. Check Your Insurance
You may want to review the terms of your insurance coverage--not just your life insurance, but also your auto, health, disability, and homeowners insurance. Are you adequately protected, given your circumstances? Is there coverage you really ought to have (such as personal umbrella liability or long-term care insurance), but don't?

9. Update Your Estate Plan
If you have children or a large estate (over the applicable exclusion amount of $2 million for 2008), you should consider reviewing your estate plan. (If your estate is smaller, you should review your plan at least every five years.) Your estate plan should be reviewed in light of certain life events, such as changes in employment, changes in family circumstances (marriages, divorces, births, illness or incapacity, and deaths), or even significant changes (greater than 20%) in the valuation of the estate.

10. Seek Assistance
There are many reasons to work with a financial professional. Ultimately, a qualified financial planner can help you keep all these resolutions--giving you more time to focus on your health, career, friends, and family.

Your parents or grandparents probably always told you, "If you can't pay for it with cash, then you can't afford to buy it." That may have been sound advice a generation ago, but such attitudes about credit are outdated and unrealistic for most adults working and living in today's world. As savvy, modern-day consumers, we will all need credit at some point.

The costs associated with purchasing cars, homes, health care, and college education have skyrocketed when compared to the average household income, so typical consumers need to borrow money if they want to own a home, purchase a car, and educate themselves or their children. Throw in a handful of charge accounts and credit cards, and it is no wonder that the average consumer is carrying more debt than ever before. With greater credit needs comes a greater need for debt management.

Good debt management ensures that you will have credit when you need it, make wise borrowing decisions, and avoid disaster if you become overextended. You can ensure that loans are available when you need them by establishing and maintaining a positive credit history. You can benefit from many specialized loan programs if you are aware of your borrowing options. You can save money by taking steps to reduce the cost of debt and save yourself from disaster if you know what to do when you can no longer meet your financial obligations.

Establishing Credit
You must first establish a credit record if you want to have ready access to loans when you need them. You establish a credit record by borrowing money from a lender who reports to a credit bureau. So, what's the problem? The problem is that few lenders will loan you money if you don't have an established credit record. That is the catch-22 of building credit. However, if you have no credit experience, there are several ways to get started.

Think small and take advantage of special credit deals to establish that first credit relationship. Increasing lender confidence with a large down payment, or posting collateral, is another. Insured credit, secured credit, and student loans have helped many borrowers get started. If you pay your obligations as agreed, you will be surprised at how many lenders will offer you credit once the ball is rolling.

Borrowing Options
You wouldn't try to buy a house using proceeds from a student loan, nor would you try to finance your college education with a credit card. However, you might use a home equity loan or line of credit to finance your child's college education. Knowing what borrowing options are available to you is important when shopping for credit. Some types of loans carry lower interest rates, some have tax-deductible interest, some are subsidized by government entities, and still others have special repayment terms designed to serve the needs of a special class of borrower.

Whenever you have the need to finance an expense, it is worth your time and effort to educate yourself about your borrowing options. Lenders today are enormously competitive, and there are more than just interest rates to consider when comparing one loan package to another. Find the loan that best suits your needs, and be sure you have examined all your choices.

Credit Reports
Part of what makes it possible for you to shop for credit is your credit report, which is a record of your past credit relationships. As mentioned previously, establishing and maintaining a good credit record makes you an attractive customer for lenders. You will get the best deals and have access to the largest number of credit options if your good credit record is maintained.

The first step in maintaining a good credit record is to pay your obligations as agreed. However, merely paying your bills is not enough. Many credit reports contain errors that are clerical in nature or caused by misidentification (e.g., someone else's bad credit gets put on your report). Although these errors are not your fault, they can cause delay or rejection when applying for a loan. To avoid such complications and delays, you need to obtain copies of your credit reports from the various national credit reporting agencies. Once done, you need to interpret the information and determine whether errors have been made. If there are problems with your report, you have a series of "borrower's rights"--enforced by the federal government--that you can exercise as well as detailed a procedures for correcting errors. You can force the credit reporting agencies to investigate errors and either correct, confirm, or delete the information, usually within 30 days.

Repairing Poor Credit
If the information on your credit report is correct but bad, you face a more difficult task. However, a poor credit record can be improved. Adding good credit to your report is helpful. It shows that your period of financial difficulty is over and that you are once again making good on your debts. You can also go back to creditors that reported bad information and negotiate a deal in which you agree to pay off the account, or make additional payments on the account, if the lender will agree to upgrade your credit status.

Your report may contain bad credit because of a dispute with a creditor. Perhaps you purchased a defective appliance on credit, the merchant failed to repair or replace it, you refused to make payments, and the merchant reported you as delinquent. You can add a consumer statement to your credit report to tell your side of the story. If all else fails in your attempt to repair credit, you may have to simply wait out your credit problems. Even bankruptcies disappear from your report in time.

Reducing the Cost of Debt
It is good to periodically evaluate your debt situation and determine whether you can reduce the cost of debt. It just doesn't make sense to pay more money for interest if you can be paying less.

There are several ways to reduce the cost of debt: You can refinance loans to get lower interest rates, use the equity in your home to pay off high interest loans and credit card balances, or transfer your credit card balances to cards with lower rates.

Other options include prepaying debts and liquidating assets to pay off loans and to avoid further interest charges. You may also seek to reduce or eliminate non-interest costs related to borrowing, such as fees and private mortgage insurance (PMI). If you have kept your mortgage payments current and built up sufficient equity in your house, you may be able to cancel your PMI coverage. Also note that many of these options have tradeoffs. For more information, you should talk to a qualified financial professional.

Options When You Can't Meet Your Financial Obligations
Ideally, you should never incur more debt than you can afford. If that plan fails, then your next task is to recognize when you are financially overextended and do something about it. Doing nothing is the worst possible choice. The longer you wait to take action, the more severe your financial troubles are likely to become.

Increasing your income stream may be an option. If not, there are things you can do to reduce your monthly obligations. Reducing the cost of debt, or negotiating directly with your creditors may enable you to lower monthly payments. If you need professional advice, you can contact one of the many nonprofit credit counseling services, such as Consumer Credit Counseling Services, which can often arrange an affordable repayment plan for you. If things are really out of control, you may want to consult a financial planner about more extreme tactics and determine whether you would benefit from a self-help support program such as Debtors Anonymous. You should face up to your financial difficulties and take steps to resolve them.

A record-keeping system is a systematic approach to retaining and filing documents in a way that makes them easy to find when needed, even if it's several years later. Record-keeping systems range from simple to elaborate and from basic to comprehensive. The ideal system is designed to fit your personal and family situation and lifestyle.

Good Record Keeping is Important
The most important thing to know about record keeping is that doing it well will save you a lot of time and money during your lifetime. Conversely, poor record keeping is sure to cost you in terms of money, time, and aggravation, perhaps dearly. For instance, assuming that you've been generally honest with the IRS, the only reason to fear a tax audit is that your records are incomplete or in disarray. If so, the IRS could find that you owe more tax than you paid. Insurance and legal claims frequently require supporting documents as well.

Record keeping is also important for estate planning purposes. After you pass away, your family and the executor of your estate will be grateful to find your records complete and in a meaningful order.

Decide What Your Record-Keeping System Will Include
The items you decide to retain in your record-keeping system will depend on several factors, including:

• Your personal and family situation
• The nature of your assets and investments
• Your household's number and type of income sources
• Your tolerance for risk
• The time you'll realistically devote to keeping records systematically

In addition to financial documents, you'll probably want your system to retain other types of important documents, such as insurance policies; health and employment records; property titles; certificates of birth, death, and citizenship; and product and service guarantees. Today, it is also common to videotape personal property for potential use as evidence in an insurance claim.

Create a System that Works Best for You
If throwing all your receipts, bills, and paycheck stubs into the proverbial shoe box until tax time is the best you can manage, then it will have to do. However, devising a systematic approach to retaining and filing your important documents will bring rewards you will appreciate in the future. If you can find little time for record keeping, then a simple system may be the answer. On the other hand, a more complex system that retains and files all potentially necessary documents on a weekly or monthly basis assures that when a need arises, you'll be able to retrieve whatever you need promptly and without fuss. You might view this as pay now or pay later.

Accessibility and Security Should Determine Where You Store Records
It is usually best to store original documents that you must or want to protect from harm in a safety-deposit box, typically rented at your local bank. This provides important protection against fire and theft. Keep a reference copy of the documents in your more readily accessible files and note on them the location of the originals.

Older files that will likely require infrequent access can be stored in any relatively secure place provided that they will not be prone to damage or destruction. Files pertaining to the last 6 to 12 months should be readily accessible.

Caution: Never store your will in a safety-deposit box unless you've left a copy elsewhere or you lease the box jointly. Otherwise, the box may be sealed at the time of your death, leaving your spouse or executor searching for another copy.